Can I deduct real estate commissions on my home that later became a rental property?

So does that mean if the property value went up a lot between 2020-2023, they might not be able to use the original costs in their basis? How do you determine the "fair market value at time of conversion" - do you need an appraisal or something?

Yes, if the property value dropped between purchase and conversion, you would use the lower fair market value as your basis. If the value increased, you'd use your adjusted cost basis (which includes those closing costs). For determining fair market value at conversion, you have several options. A formal appraisal is the most accurate but can be expensive. Alternatively, you can use comparable sales in the area, a realtor's market analysis, or property tax assessments adjusted for actual market conditions. Whatever method you choose, just make sure you keep documentation to support your valuation in case of an audit.

Did it actually help with figuring out the fair market value part too? That seems like the trickiest part to me, since you'd need to know what the property was worth when you converted it.

I'm always skeptical of AI tools for tax stuff. Can it actually cite specific IRS publications or tax code? My accountant charges me a fortune but at least I know he's using official guidelines.

It absolutely helped with the fair market value determination. It suggested multiple methods for establishing FMV at conversion time and helped me decide which was most appropriate for my situation. The system even created a documentation checklist to support my valuation in case of an audit. The tool actually cites specific IRS publications and tax code sections for every recommendation it makes. It pulled up Publication 527, sections on basis of property changed to rental use, and even referenced relevant tax court cases. I found it much more thorough than my previous tax preparer who just gave generic advice without explaining the underlying rules.

Wait, this is a real thing? How exactly does it work? I thought it was impossible to get through to the IRS these days.

Yeah right. Sounds too good to be true. The IRS is understaffed by like thousands of people. No way some service can magically get you through when millions of people can't get answers.

It's definitely real! The service basically holds your place in line with the IRS and calls you back when you're about to be connected. It uses some tech that navigates the phone tree and stays on hold so you don't have to. Trust me, I was just as skeptical at first. I figured it was worth trying since I was getting nowhere on my own. The IRS is definitely understaffed, which is exactly why this service is so valuable - it does the holding for you instead of you wasting hours of your day. I got clear guidance on my rental property basis question that I couldn't find a definitive answer to anywhere else.

Yes, you stop depreciating the property once you convert it back to personal use. The property is only depreciable during the period it's used as a rental/business asset. Keep good records of your depreciation deductions over the years because you'll need to recapture that depreciation if you ever sell the property. Even if you're living in it as your primary residence when you sell, the IRS will still want their depreciation recapture tax on the amount you've previously depreciated.

Thanks for the clear answer! I've been tracking the depreciation all along but wasn't sure if I needed to keep depreciating it or not. Good to know about the recapture too - that's something I hadn't considered.

No, property taxes and mortgage interest are generally not added to your basis - those are regular expenses. Closing costs that go into basis are things like title fees, attorney fees, recording fees, transfer taxes, and real estate commissions.